The U.S. Department of Education is in the process of implementing a new income-driven repayment (IDR) plan for federal student loans known as Saving on a Valuable Education (SAVE). Like other IDR plans, the SAVE plan calculates monthly payment amounts based on income and family size but cuts payments in half for many borrowers, protects more of a borrower’s income, and prevents balances from growing due to unpaid interest. As a result, the SAVE plan is the most affordable plan to date, offering the lowest monthly payments of any IDR plan for over 20 million borrowers.

Beyond the immediate benefit of reducing student loan payments, the SAVE plan has implications for the broader financial health of student loan borrowers, including the ability to save and the possibility of homeownership—especially if complementary policy changes are implemented in mortgage underwriting. Through an analysis of anonymized credit records, this research aims to identify the borrowers who are likely to benefit from this repayment plan, explore its potential financial impact, and assess its potential to enhance homeownership prospects.

Key Findings
  1. The SAVE plan carries the potential to significantly reduce the monthly payments of current IDR borrowers, potentially lowering them from $197 to $69.
  2. Borrowers who are actively making monthly payments would experience a debt-to-income (DTI) ratio reduction of 1.5% to 3.6% by enrolling in SAVE.
  3. If the Federal Housing Administration (FHA) adopts underwriting criteria similar to Fannie Mae by counting $0 payments, borrowers with $0 payments could see their DTI decrease by between 3.8% to 7.1%.